Optimal Energy Management and Marginal-Cost Electricity Pricing in Microgrid Network

The evolution of smart microgrid and its demand–response characteristics not only will change the paradigms of the century-old electric grid, but also will shape the electricity market. In this new market scenario, once always energy consumers, now may act as sellers due to the excess of energy generated from newly deployed renewable energy generators. In this paper, we propose an optimization scheme to minimize the electricity price with a framework for optimal trading of energy between sellers and buyers of the microgrid network (MGN). The proposed scheme is capable of solving the optimal power allocation problem for an MGN in a polynomial time without modifying the actual marginal costs of a generator. Initially, we mathematically formulate the problem as nonlinear nonconvex and later decompose the problem to separate the optimal marginal-cost model from the electricity allocation model. Then, we develop a divide-and-conquer method to minimize the electricity price by jointly solving the optimal marginal-cost model and electricity allocation problems. To evaluate the performance of the solution method, we develop and simulate the model with various cost functions and compare it with a first come first serve electricity allocation method and distributed energy trading for multiple microgrids.